Mortgage Terms For “Dummies”:
Understanding Mortgage Jargon
If you are a first-time homebuyer chances are you may not be well versed with the countless mortgage terms and definitions that loom over the buying process. For some it’s like learning another language. So to simplify some of the mortgage jargon, I have compiled a quick list of some common mortgage definitions.
Escrow: An account which a neutral third party holds all documents and money in a real estate transfer until all conditions of a sale are met and finalized. During your home search you will often come across properties of interest that are “under contract”, or “in escrow”. This basically means that an acceptable offer has been agreed upon between buyer and seller and the house is now going through the process of transferring over to the buyer. (See List of Nashville Escrow Companies)
Closing Costs: These are expenses incurred by seller and buyer when transferring ownership of property. Costs normally include an origination fee, attorney’s fee, taxes, escrow payments, title insurance and in some cases discount points. Lenders must provide good faith estimates (expected closing costs) to prospective home buyers. You must be aware that closing costs are IN ADDITION to the purchase price of the property.
Annual Percentage Rate (APR): A standardized method of calculating the cost of a mortgage, stated as a yearly rate which includes items such as interest, mortgage, insurance and certain points of credit costs, which in turn is higher than what a lender will quote. (See Current Mortgage Rates)
Adjustable-Rate Mortgage, or (ARM): A home loan in which the interest rate changes periodically based on a standard financial index. This means the rate may go up or down over time. Most ARM’s have caps on how much an interest rate may increase, however, always look into the pros and cons of this type of mortgage. Thousands of homeowners who had ARM’s wound up losing their homes back in the mid- 2000’s due to a massive increase in their rates after the market crashed. (See Current Nashville Mortgage Rates)
Fixed–Rate Mortgage: A home loan in which the interest rate will remain the same throughout the life of the loan. Most loans are for 15 or 30 years, but there are some loans that are for 10,20,40 and even 50 years. 40 and 50 year loans keep monthly payments lower, however, render less equity as the years go by making this option a possible risk. Be sure to carefully evaluate these types of loans if you are considering them. (See List Of Nashville Lenders)
Principal: The amount of debt, minus interest, that is left on a loan. With most mortgages monthly payments for the most part are applied towards the interest of the loan, and later applied to the principal.
I you or someone you know is interested in buying or selling
a Nashville Home please contact:
The Lipman Group | Sotheby’s International Realty
Office: (615) 463-3333 / Cell: (615) 509-1753